Energy inefficiency


Apparently, the efficiency of power plants in the United States has remained the same for the past 50 years. That's right; in 1957, at a 33% efficiency rate, power plants got just as much energy for every pound of coal as they do today. Why this dearth of technological growth in such an important sector? One author makes a plausible case that it is the extensive regulations and perverse incentives created by government subsidies that have distorted the market, making efficiency unprofitable and competition miniscule.

According to the article, the market "is not stagnant because we've hit any fundamental limit. Indeed, studies by the US Department of Energy and Environmental Protection Agency have identified a whopping 200,000 MW of potential (that's 20% of the peak power demand of the US) for proven technologies that either recover waste energy from industrials and/or cogenerate heat and electricity from a single fuel source."

In other words, we have the technology to drastically increase the efficiency of energy production. In a free market, this efficiency would convert immediately to an increased profit and should therefore be adapted relatively quickly. One major reason that this has not happened is the fact that government regulation makes small start-up companies in the sector unviable – because capital investments are subsidized but energy must be passed on at no mark-up over operating costs. Moreover, mandates to adopt certain kinds of environmental standards have had the perverse effect of shutting out better, more efficient improvements.

Because of its size, importance, and environmental impact, the energy sector is often seen as a sector that requires government intervention. Yet that very government regulation has instead stifled progress to an almost shocking degree. Since the 1950's, we've invented personal computers, the internet, landed men on the moon and sent rovers to Mars. Is it a coincidence that despite all of that progress in unregulated fields, the most heavily regulated sector of the American economy has literally stagnated? I think not.